Day 14 - Know Your Taxes

"Shave or Pay" 

People with beards had to pay Beard tax in Russia and England in the 17th and 16th centuries.

They had to carry a tax token, or else their beard was forcefully shaved off. 

   Beard tax varied on the social and economic status of the person. As a result, only the rich and elite could afford to grow a well-groomed beard. 

This may be how beards became a status symbol and a fashion statement.

It doesn't matter if you don't know about the Breard tax and other weird taxes of the past. But it is essential to understand the taxes applicable to you in the following places;

1. Your home country- On income and assets, you may continue to receive and hold.
2. The country you are presently residing - on income and assets you now receive and hold
3. The country you are likely to immigrate to shortly.

Welcome to Day 14 of the 30Day - Win with Money Challenge.

Today's task is to understand the tax regime(s) applicable to you. Spend some time to understand your tax liability and start planning for it.

Governments worldwide are coming hard on people evading taxes, and ignorance is not an excuse.

I am listing below the broad taxation guidelines for your benefit. 

I will limit this post to direct taxes, as we consumers have no scope for indirect tax planning.

Direct Taxes

Direct taxes are levied on a person or entity's income, wealth and profits. Some examples are;

1. Income Tax
2. Capital Gains 
3. Wealth tax
4. Inheritance tax

They are non-transferable.

The following are the five primary direct tax systems in the world;

Citizenship-based Taxation 

Only USA and Eritrea follow this. US citizens must declare and pay taxes to the IRS on their global income, no matter where they reside.

Did you know that your investments in the USA are subject to inheritance tax even though you are not a US resident? - This includes your Properties, Stock, and ETF portfolio in the US

Click here to know more.

Residency-Based Taxation 

More than 130 countries use residency-based taxation—E.g., India, Canada, Australia, New Zealand, Japan, Korea, and many more.

Under this system, residents are liable to pay taxes on their total worldwide income. 

The 183 Days Rule typically determines the Tax residency. Click here to learn more about this rule.

If you are an NRI planning to return to India shortly, this blog post could provide helpful information. 

Territorial Taxation

Under Territorial Taxation, only the income generated by residents within the country is taxed. Income outside such countries is not taxed.

Some examples are Hongkong, Singapore, Panama, Malaysia, Macau, and Gibraltar. 

The Non-Domicile Taxation

It typically applies to ex-pats residing in such countries temporarily. Non-Dom Taxation differentiates between the domicile and residence of a person.

"Domicile is the place or country where you have a lawful and official permanent home. It is your primary residence where you may choose to reside after some time." - Global Citizen Solutions.

For Eg: A German living in the UK is a Non-Dom.

Some countries that apply Non-Domicile Taxation are; The United Kingdom, Cyprus, Malta, and Ireland.

Zero Taxation

A few countries, like the Cayman Islands, and Maldives, have zero tax. In UAE, we have no personal income tax. However, corporate taxes will be effective from 1 June 2023.

I hope this information was helpful. I will add a few more posts on this subject soon. 

Let me know if you have any questions on the above.